CHART OF THE DAY: This Is Easily The Craziest Reason Why A Company Would Boost Its Dividend

Wall Street's top equity strategists have been pushing "corporate
cash return strategies" as the best way to play the stock
market. These are strategies where companies return cash to
shareholders in the forms of buybacks and dividends.
Deutsche Bank's David Bianco recently wrote a massive report
on how share buybacks would cause EPS to surge.
SocGen's Dylan Grice and Bank
of America's Savita Subramanian both aggressively argue that
high quality dividend growth strategies are best for the long
run.

Adam Parker, Morgan Stanley's top U.S. equity strategist also
pushes the idea of moving into dividend stocks. Like Grice,
he stresses how dividends historically account for the bulk of
total returns. Like Subramanian, he notes that
supply-demand dynamics bode well for dividend stocks.

However, no other report we've read points to this fascinating
nugget that Parker unearthed: executive compensation
trends. In short, it has become increasingly in the best
interests of executives to boost dividend payouts thanks to the
evolution of equity-based compensation.

From Parker:

What could cause payout ratios to increase? Perhaps it is the
fact that management teams are paying themselves more in
restricted stock units (RSUs) than in options? In recent years,
more CEOs of S&P 500 companies have received compensation in
the form of restricted stock than as options (Exhibit 8).
It is important that fundamental analysts understand how
the senior management teams of the companies they are analyzing
are variably compensated, as those with restricted stock and not
options are much more likely to increase dividends. The
principle? People rarely intentionally damage their own net
worth.